Default-O-Matic update: TribCo at most risk
The Default-O-Matic predicts a company’s risk of default by using ratings from Moody’s Investors Service, one of the three independent agencies hired by bond issuers to assess their ability to repay the money they borrow.
Since the Default-O-Matic was launched here six weeks ago, not only did JRCO hit the wall but the ratings of three of the nine remaining publishers were downgraded by Moody's. In addition to Tribune, the others taken down a few notches were GateHouse Media and Scripps.
Journal Register on July 31 slid from the lowest-possible junk rating to the D category when it suspended payments on its $640 million in debt.
In a complicated arrangement, JRCO’s lenders agreed to a holiday on interest payments until Oct. 31 in the hopes the company can reorganize or be sold. If something doesn’t happen by that date, there is no plan for the lenders to extend the so-called forbearance period. Given that the company has stopped paying cash interest and that its liabilities outweigh its assets, its condition is “tantamount to an event of default,” said Moody’s.
With Journal Register effectively off the board, the publisher at the highest risk of default now is the Tribune, which owes some $12 billion and is among the most aggressively leveraged of all publishers.
Just six months after being taken over in an high-risk financing engineered by Sam Zell, Tribune’s rating dropped two notches on June 23 into the lowest tier in the junk-bond category. At its new Caa2 rating, Tribune’s issues are considered to have a 48.3% chance of not being repaid in conformance with the terms of the borrowing. In announcing the rating reduction, Moody’s added that the outlook for Tribune is “negative,” signaling the possibility of future downgrades.
Also busted to the lowest junk-bond tier since the Default-O-Matic debuted on June 23 was GateHouse Media. GHS is rated as having a 35.6% chance of default, and its outlook, like Tribune’s, is “negative.”
The third publisher to be downgraded in the last six weeks was Scripps, which dropped three notches from its prior position after its interactive division was spun off on July 1. Despite the reduction, the company’s issues remain investment-grade securities with a comfortable 2.6% probability of default.